The Risks and Rewards of Credit Card Debt Consolidation

Carrying credit card debt isn’t always a bad thing. If you have outstanding balances and make your monthly payments, it can help you build a good credit history.

However, sometimes credit card debt is a bad thing. If you have more than one card with an outstanding balance, you might be wondering about credit card consolidation. Is debt consolidation something you should consider?

There are both risks and rewards associated with credit card debt consolidation. Here’s what you need to know.

The Risks of Credit Card Consolidation

Let’s start by talking about the risks of credit card consolidation. While on the surface, consolidating your debt might seem to be a good idea, it’s not without its potential downsides. Here they are:

Some credit cards offer introductory credit rates to encourage balance transfers, but they’re only good for a limited time. It’s important to read the fine print. If you end up with a higher interest rate than you had on your original balances, the consolidation may not be worth doing.
If you take out a loan to pay off credit card debt, you may fall into the trap of running up your balances again. A failure to take the loan payment into consideration could result in your repeating the patterns that got you into trouble in the first place.
Depending on the method you use, you could end up paying more in the long run than you would have if you’d kept those balances open and paid them down each month. It’s important to look at what your monthly payment will be before you decide.
If your credit is poor or damaged, it might be difficult to find a cost-effective debt consolidation option that will work for you. Some lenders may be reluctant to offer you an attractive loan or credit card if your credit history doesn’t support it.

The key takeaway here is not to jump on a debt consolidation offer without considering the consequences. You’ll need to make sure that you understand what you’ll be paying and how it will affect you in the future before you decide.

The Rewards of Credit Card Consolidation

Now that you know the risks of consolidating your debt, let’s talk about the rewards. For many people, debt consolidation is attractive for the following reasons.

You’ll have just one monthly payment to make instead of several. Keeping track of multiple bills can be challenging. If you consolidate your debt, you’ll have one payment to worry about, and that can make it easier to stay on top of it and make your payments on time.
You can end up paying less in the long run. If you shop carefully and choose a credit card or loan that has a lower interest payment than the cards you’re consolidating, you can save a significant amount in the total you pay. As stated above, you’ll need to make sure to read the fine print, but if you’re locked in to a favorable interest rate, you can save a lot through credit card consolidation.
It can help you curb unhealthy spending habits. Sometimes, people run up credit card debt because they don’t keep track of how much they owe. Spending small amounts on multiple cards may leave you unsure of what your debt is. When it’s all in one place, it’s easier to monitor your debt and avoid overspending.

The takeaway here is that if you feel out of control because you don’t know what you owe or can’t keep track of your monthly payments, debt consolidation may help you get back on track financially.

Is Debt Consolidation Right for You?

When it comes to paying off debt, there’s no one-size-fits-all solution. Each person is different. You’ll have to assess your situation and make a decision that suits your needs and behavior.

If you’re unsure how to decide, here are some tips to help you:

Calculate your total debt so you have a handle on how much you owe.
Make note of interest rates on each card.
Collect information about debt consolidation options, including credit card transfers and loans.
Read the fine print so you understand what you’ll be paying with each option.
Compare what your monthly payment would be with each option to what you’re paying now.

The final step is really a gut check. Do you think you’d find it easier to manage and pay down your debt if you had only one payment to make each month? If the answer is yes, that’s an indication that you might benefit from credit card consolidation.

Provided you understand the consequences of doing it, consolidating credit card debt can make a lot of sense – and it can help you get out of debt and repair your credit.

If you have any other questions feel free to get in touch with a knowledgeable team member at your local branch.